SBS Holdings (TSE:2384) Will Pay A Larger Dividend Than Last Year At ¥85.00

SBS Holdings, Inc. (TSE:2384) will increase its dividend from last year's comparable payment on the 10th of March to ¥85.00. Based on this payment, the dividend yield for the company will be 2.5%, which is fairly typical for the industry.

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SBS Holdings' Projected Earnings Seem Likely To Cover Future Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, SBS Holdings' dividend was only 47% of earnings, however it was paying out 125% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Looking forward, earnings per share is forecast to rise by 23.0% over the next year. If the dividend continues on this path, the payout ratio could be 54% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for SBS Holdings

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ¥16.00 in 2015 to the most recent total annual payment of ¥85.00. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

SBS Holdings May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. In the last five years, SBS Holdings' earnings per share has shrunk at approximately 2.9% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think SBS Holdings will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, SBS Holdings has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about. Is SBS Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.